How Bitcoin Fixes Corporate Balance Sheets

Summary

• Michael Saylor says Bitcoin will fix your corporate balance sheet, quoting Lyn Alden’s paper.
• Alden explains why companies de-capitalize themselves, and the benefits of stacking Bitcoin.

Michael Saylor shared an article written by Lyn Alden via X, saying that Bitcoin will fix your corporate balance sheet.

The founder of Lyn Alden Investment Strategy recently wrote a piece called “A New Look at Corporate Treasury Strategy,” explaining how companies have historically de-capitalized themselves, and highlighting why stacking Bitcoin works.

Why Cash Doesn’t Work

She began by explaining why cash doesn’t work as corporate savings in the long term.

According to her, cash returns fail to keep up with money supply growth and are dwarfed by the rate of return that equity investors expect.

This makes cash unsuitable for long-term corporate savings assets beyond near-term liquidity needs.

Why Gold Doesn’t Work

Alden continued and moved on to gold as a strategy for corporate savings. She says that a scarcer asset like gold could work as long-term corporate savings, but even gold gets diluted over time, but at a slower rate.

History tells us that gold has not been a great performer as a store of value, and this is the main reason for which we don’t find it on virtually any corporate balance sheets globally.

She shared a chart from Visual Capitalist that shows the estimated annual production of gold over time which reveals that we mine about six times as many tons per year as we did a century ago.

This is a lot less exponential than the growth of fiat currency, but it limits the gold’s ability to store value for an entity seeking to offer investors top-performing equity returns.

In her article, Alden explains that other scarce assets such as real estate and stocks have their limitations as saving assets for corporations as well.

These are more complicated and costly to manage and they’re usually outside of a corporation’s main area of expertise.

Risks of Corporate Decapitalization

Alden explains the ways in which companies de-capitalize themselves. According to her, when a company has excess cash from operations, it has a few options as to what it can do with it. These include the following:

• Reinvestment
• Acquisition
• Savings
• Dividends
• Buybacks

Alden also made a reference to another one of her articles from 2017 about why corporations that persistently pay dividends or perform buybacks tend to outperform those that do not.

She notes that if a company has excess cash and there are no good savings assets for it, shareholders don’t want them to invest it into anything and everything.

According to her, you’d rather them invest in their best ideas, and then return the capital to you so that you can spend it yourself elsewhere or reinvest it back into their best ideas.

Bitcoin, A Viable Savings Asset

Eventually, Alden addressed Bitcoin as a powerful savings asset because, unlike gold, it has zero long-term dilution. The supply cap is set at 21 million which is enforced by the distributed node network.

Also, it has been the best-performing asset for a really long time now.

She explains that Bitcoin can fix the illiquidity of real estate and prevent giving monetary energy to other nations. Bitcoin is faster than fiat currency and harder than gold. It’s also liquid and easy to hold.

She also addressed the common issue of volatility related to Bitcoin which will continue until the levels of exploration and adoption reach higher peaks.

Alden said that there are already a lot of small businesses that hold Bitcoin on their balance sheet, as it’s easier for small companies to take decision action. Here, only one or a few people have to make important decisions.

Larger companies have more stakeholders and checkpoints involved and this slows decision time, even if it reduces risks.

However, larger companies have already adopted Bitcoin as well, and the best example is probably MicroStrategy which began converting their corporate treasury to BTC in August 2020. They have been seeing massive performance since then.

Nations are already starting to see Bitcoin as a viable option for becoming a legal tender and obviously, the best example is El Salvador.

Bitcoin ETFs that kicked off in 2024 are bringing institutional attention around BTC and adoption is intensifying quicker than before Bitcoin has even become a main topic of discussion in the 2024 US elections, and this is the best example of its exponentially rising ability to attract interest.